Corporations have become increasingly influential within societies around the world, while the relative capacity of national governments to meet large social needs has waned. Consequentially, firms are being asked to adopt responsibilities that have traditionally fallen to governments, aid agencies, and other types of organizations. There are questions, though, about whether this is beneficial for society. We study this in the context of disaster relief and recovery; an area where companies account for a growing share of aid as compared to traditional providers. Drawing on the dynamic capabilities literature, we argue that firms are better-equipped than other types of organizations to sense areas of need following a disaster, seize response opportunities, and reconfigure resources for fast, effective relief efforts. As such, we predict that—while traditional aid providers are important for disaster recovery—relief will arrive faster, and nations will recover more fully when locally active firms account for a larger share of disaster aid. We test our predictions with a proprietary database comprising information on every natural disaster and reported aid donation worldwide from 2003 to 2013. Our analysis uses a novel, quasi-experimental technique known as the synthetic control method and shows that nations benefit greatly from corporate involvement when disaster strikes.

The Effect of Giving from Locally Active Firms on Post-Disaster Recovery (15 years pre-disaster; 10 years post-disaster)

The figure shows the difference in HDI growth rate between treatment nations and correspondent synthetic controls. Period (0) is the disaster year. Treated are disaster countries with a substantial share of disaster giving coming from firms with operations in the affected country [(as defined by the 75th (7.7%), 95th (24.5%), and 99th percentiles (44.4%)]. The total sample of country disasters in the period 2003-2013 is 464.Media coverage:

Nonprofit organizations (NPOs) are often identified as a natural vehicle for the engagement of firms in large‐scale social issues. We evaluate this argument by examining the conditions under which NPO experience is more valuable than firm experience in overcoming the key challenges associated with corporate disaster giving. Findings from a quasi‐experiment across the 4,396 natural disasters worldwide between 2003 and 2015 demonstrate that firms could donate more by implementing the aid through NPOs (on their own) in countries with low (high) institutional development, especially where they lack (have) market operations. However, we also observe that firms more frequently than not opted into the allocation mode that yielded comparatively low aid, raising questions about incentive alignment and communication across the business and nonprofit sectors.

In line with the fallacy of riskification of uncertainty by which decision makers believe that the effects of unpredictable phenomena can be captured accurately by probability distributions, organizational scholars commonly treat the organizational inefficiency in dealing with uncertainty shocks—exogenous hazards whose welfare effects spread across industries and markets, such as natural disasters, terrorist attacks, and financial crises—as a problem of risk management. This is problematic because the consequences of uncertainty shocks outstrip the predictability capacity for the average manager and entail a greater complexity of internal and external factors. Moreover, their uniqueness makes translating experience into learning far more difficult. We seek to address this inadequate approach with a theoretical framework that captures the multidimensional complexity of organizations preparing for, coping with, and recovering from exogenous uncertain disruption. We bring together the literatures on cognitive psychology that suggest that biases and heuristics drive behavior under uncertainty, a Neo-Carnegie perspective that indicates that organizational structure and strategy regulate these behavioral factors, and institutional theory that points to stakeholder and institutional dynamics affecting economic incentives to invest in prevention and business continuity. Taken together, this article offers the foundation for a behaviorally plausible, decision-centered perspective on organizational decision-making under uncertainty.

When firms decide to engage in the provision of collective goods that benefit social welfare (i.e., to behave pro-socially), they may consider the economic relevance of such goods for their own market operation. The bigger the stake of the firm in a market is, the greater its reliance on the market’s collective goods, such as communication infrastructure. Therefore, a market’s relative importance for a firm is a major predictor of corporate pro-social behavior. I show that accounting for variation in economic reliance leads to a more accurate prediction of corporate pro-social behavior than widely invoked arguments rooted in the extant literature.

Scholars have long sought to demonstrate the financial value of corporate social responsibility (CSR) and found that stakeholders tend to respond positively when CSR aligns with their values or interests. This work builds on the premise that stakeholders have stable preferences and are able to identify behaviors as contextually appropriate. However, firms’ pro-social behavior often occurs under high uncertainty of the social need and the firm’s capacity to respond. Hence, stakeholders are likely to interpret a firm’s actions with other cues. We argue that stakeholders use a firm’s preexisting reputation to predict the contextual appropriateness of its non-market behavior. Well-reputed firms will thus derive rents regardless of their response, while poorly-regarded firms will be punished, regardless of the relative social value of their donation amount. In turn, these assessments will become cognitive anchors that shape how subsequent responses are viewed. The reputation of the first mover overrides the reputation of an imitating follower, which obtains a spillover benefit or loss. Our analyses use a database covering every firm donation to every natural disaster worldwide from 2003 to 2015 and the preliminary results point to important boundary conditions for the relationship between CSR and rent accrual.